Understanding Form MSME-1: Filing, Requirements, and Compliance for Indian Companies

Explore Form MSME-1 compliance for Indian companies with outstanding dues to MSMEs. Key dates, filing details, and regulatory insights covered.

Form MSME – Overview

Micro, Small, and Medium Enterprises (MSMEs) form the backbone of India’s economic fabric, contributing significantly to employment and industrial growth. The Ministry of Corporate Affairs (MCA) has introduced the MSME Form, a crucial regulatory instrument designed to enhance transparency, streamline compliance, and ensure timely payments within the sector Micro, Small, and Medium Enterprises (MSMEs) form the backbone of India’s economic fabric, contributing significantly to employment and industrial growth. 

The Ministry of Corporate Affairs (MCA) has introduced the MSME Form, a crucial regulatory instrument designed to enhance transparency, streamline compliance, and ensure timely payments within the sector. On ’22nd January 2019, the Ministry of Corporate Affairs (MCA) notified companies with outstanding dues to Micro and Small Enterprises (MSMEs) to submit details of these dues through Form MSME-1. The submission process comprises the initial return (MSME-1) and the half-yearly return (MSME-2). MSME-1 must be filed within 30 days from the notification date, initially set on 21st February 2019 (with subsequent extensions as detailed in this article). The due date has undergone extensions, and the current deadline is set within 30 days of the MCA making the form available. This article provides an in-depth examination of Form MSME-1, offering insights into its requirements and the extended timelines for compliance.

Who Should File Form MSME-1?

All companies, regardless of type (public, private, listed, unlisted), must file Form MSME-1 if they have outstanding payments to Micro and Small Enterprises (MSMEs) for more than 45 days. 

This includes companies across various sectors, like:

• Manufacturing
• Services
• Trading
• Construction
• IT and technology

Essentially, any company that procures goods or services from an MSME and fails to clear the payment within the stipulated timeframe falls under the purview of filing Form MSME-1. 

Remember, this form intends to ensure timely payments to MSMEs and protect their financial interests. So, if you fit the above criteria, it’s your responsibility to comply with this regulation.

Purpose of Filing Form MSME-1

1. Promoting Timely Payments to MSMEs:

• The form is a deterrent against delayed payments by requiring companies to disclose outstanding amounts to the Ministry of Corporate Affairs (MCA).
• This visibility and potential for scrutiny encourage companies to prioritize payments to MSMEs, ensuring they receive their dues within a reasonable timeframe.

2. Protecting the Interests of MSMEs:

• MSMEs often need help securing timely payments from larger businesses, which can negatively impact their cash flow and operations.
• Form MSME-1 empowers the government to track payment patterns and intervene in cases of undue delays, safeguarding the financial health of MSMEs

3. Facilitating Data Collection and Analysis:

The data gathered through Form MSME-1 provides valuable insights into: 

• Payment trends within the MSME sector
• Identifying industries or regions with frequent payment delays
• Understanding the effectiveness of payment protection measures

This information assists the government in: 

• Formulating policies to address payment delays
• Strengthening support mechanisms for MSMEs
• Promoting a more conducive business environment for MSMEs

4. Enabling Better Enforcement of Payment Regulations:

• The MSME Development Act of 2006 mandates timely payments to MSMEs.
• Form MSME-1 facilitates enforcement of these regulations by providing the MCA with concrete evidence of non-compliance.
• This enables the authorities to take appropriate actions against defaulting companies, ensuring adherence to the law

5. Enhancing Transparency and Accountability:

• Public disclosure of payment information through Form MSME-1 promotes company transparency and accountability.
• This encourages responsible payment practices and discourages exploitation of MSMEs, fostering a more equitable business ecosystem.

Details to be Reported in Form MSME-1

 The details you need to report in Form MSME-1 fall into two main categories:

Company Information:

• Corporate Identity Number (CIN): This unique identifier is assigned to your company by the Ministry of Corporate Affairs (MCA).
• Name of the company: Your company’s registered name.
• Address of the registered office: The official address where your company is registered.
• The financial year for which the return is being filed: Choose the specific financial year (April-March) for which you report outstanding payments.

Outstanding Payments to MSMEs:

• Name of the MSME supplier: The name of the micro and small enterprises to which you have outstanding payments.
• MSME Registration Number (UAM Number): The unique UAM number assigned to the MSME supplier.
• Invoice date: The MSME supplier issued the invoice for the goods or services.
• Due date of payment: The original date the price should have been made to the MSME supplier.
• Amount of outstanding payment: The current outstanding amount owed to the MSME supplier.
• Reason for delay in payment (if applicable): If appropriate, explain why the payment has been delayed beyond the due date.

Due Date for Filing Form MSME-1

The due date for filing Form MSME-1 depends on the period for which you are reporting outstanding payments: 

Half-Yearly Filing

• April to September period: Due by 31st October of the same year.
• October to March period: Due by 30th April of the following year.

Non-Compliance of Filing Form MSME-1

Non-compliance with filing Form MSME-1 can negatively affect companies and their officers. Here’s what you need to know: 

Penalties: 

• Companies: Companies can face a penalty of up to ₹1 lakh (US$1250) for each period of non-compliance.
• Officers: Directors and other responsible officers in default can be fined up to ₹25,000 (US$312) for each period of non-compliance.

Continuing Offence: 

• The penalties are applicable for each day the non-compliance continues, increasing the potential financial burden significantly.
• There is a maximum limit of ₹3 lakh (US$3750) for companies and ₹25,000 (US$312) for officers, but the daily accumulation can still be substantial.

Reputational Damage: 

• Non-compliance is publicly recorded on the MCA website, potentially damaging the company’s reputation and credibility among stakeholders.
• This can negatively impact investor confidence, customer trust, and business relationships.

Legal Action: 

• The MCA may initiate legal proceedings against the company and its officers for non-compliance, leading to further complications and expenses.
• In extreme cases, imprisonment could be a potential consequence for directors or responsible officers.

What is the Form MSME 45 Days Payment Rule?

The MSME 45 Days Payment Rule, also known as Section 15 of the Micro, Small & Medium Enterprises Development (MSMED) Act, 2006, is a regulation in India that aims to protect micro and small enterprises (MSMEs) from delayed payments by larger entities. Here’s a breakdown of the key points:

What it stipulates:

• The rule mandates that all buyers (including government departments, Public Sector Undertakings, and private companies) must make payments to MSME suppliers within 45 days of the acceptance of goods or services.
• This acceptance can be explicit (written acceptance letter) or deemed (absence of rejection within 15 days of receiving the goods/services).
• Exceptions: The rule provides exceptions for certain situations like disputes regarding the quality of goods/services or delays in receiving necessary documentation.

Benefits for MSMEs:

• Improves cash flow: By ensuring timely payments, the rule helps MSMEs maintain their financial stability and avoid cash flow problems.
• Reduces dependence on loans: With regular payments, MSMEs are less reliant on expensive loans to manage their operations.
• Boosts business confidence: Timely payments create a more predictable and secure business environment for MSMEs, encouraging them to invest and grow.

Consequences of non-compliance:

• Penalties: Companies that fail to comply with the 45-day payment rule can be fined up to ₹1 lakh (US$1250) for each period of non-compliance.
• Legal action: The Ministry of MSME can initiate legal proceedings against the buyer, potentially leading to further penalties and reputational damage.
• Delayed payments to suppliers: Continued non-compliance can damage the buyer’s reputation and make it difficult to secure reliable suppliers in the future.

Mechanism for enforcement:

• MSMEs can file complaints against buyers who violate the 45-day payment rule with the MSME Facilitation Councils (MSFCs) in their respective states.
• The MSFCs investigate complaints and have the authority to impose penalties on non-compliant buyers.

FAQs on Form MSME

What is MSME Form 1?

It's a half-yearly return that specified companies in India are required to file with the Ministry of Corporate Affairs (MCA) to disclose outstanding payments to Micro and Small Enterprises (MSMEs). It aims to protect the interests of MSMEs by ensuring timely payments and promoting transparency in payment practices.

When do you file MSME Form 1?

Initial return: Within 30 days of the commencement of the MSMED Act, 2006 (as amended) or within 30 days of becoming a specified company.
Half-yearly returns:
April to September period: Due by 31st October
October to March period: Due by 30th April

Why was the MSME-1 Form introduced by the MCA?

• To track outstanding payments to MSMEs and ensure timely payments.
• To discourage delayed payments and protect the financial health of MSMEs.
• To collect data for analysis and policy formulation to support MSMEs.
• To enable better enforcement of payment regulations.
• To enhance transparency and accountability among companies.

Who are Micro, Small & Medium Enterprises (MSMEs)?

Enterprises are classified based on investment in plant and machinery (for manufacturing) or equipment (for services) as defined in the MSMED Act, 2006. The current thresholds are:

• Micro: Up to ₹ one crore
• Small: ₹1 crore to ₹10 crore
• Medium: ₹10 crore to ₹50 crore

What details need to be furnished in Form MSME-1?

Company information (CIN, name, address, financial year) , Outstanding payments to MSMEs (supplier name, UAM number, invoice date, due date, outstanding amount, reason for delay)

What is a Specified Company under MSME Form-1?

Any company, irrespective of type (public, private, listed, unlisted), that has outstanding payments to MSMEs for more than 45 days.

Steps to file the initial return (MSME Form 1):

• Visit the MCA portal (www.mca.gov.in).
• Log in using a valid DSC.
• Access the MCA Services tab.
• Select Form Filing and choose MSME Form I.

Fill in the required information and submit.

Initial return date of Form MSME-1:

Within 30 days of the Act's commencement or becoming a specified company.

Due date of regular half-yearly return:

• April to September period: 31st October
• October to March period: 30th April

Penalty Fees for non-filing of Form MSME-1:

• Companies: Up to ₹1 lakh for each period of non-compliance
• Officers in default: Up to ₹25,000 for each period of non-compliance